Thursday 18 October 2018

Italian coalition deal rattles markets with vow to raise spending

Traders work on the floor of the New York Stock Exchange
Traders work on the floor of the New York Stock Exchange

Reuters

Political uncertainty in Italy weighed on the country's stocks and bonds as well as the euro yesterday, while trade concerns and tepid corporate earnings kept Wall Street in check.

The US dollar's rally continued, rising for a fifth straight session against a basket of currencies.

Investors were digesting moves this week of 10-year benchmark US Treasury yields breaking above 3.1pc and oil prices topping $80 a barrel. On Friday, oil markets took a breather while the 10-year bond yield retreated from a near-seven year peak.

But a volatile week for Italian markets continued as two anti-establishment parties pledged to increase spending in a deal to form a new coalition government.

After the League and the Five Star Movement outlined their economic plans, the euro also fell, ceding early-session gains against the dollar.

The agreement between the two parties that won the most parliamentary seats in an inconclusive March 4 election, watered down some of their most radical proposals to retreat from eurozone structure.

Yields on Italy's 10-year bond rose to the highest point in more than seven months, while the country's stocks slumped 1.5pc.

The euro was down 0.21pc to $1.1768, on track for a fifth session of declines.

"The possibility of a eurosceptic government in Rome is shaking investor confidence ... at this point a larger fiscal deficit and greater bond issuance (in Italy) does seem likely," said David Madden, a strategist at CMC Markets.

Irish Independent

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